Treasury Secretary discusses crackdown on evasion of Russian oil price cap as effectiveness wanes

Viktoria Dendrinou, Bloomberg October 09, 2023

(Bloomberg) — Treasury Secretary Janet Yellen said the U.S. is preparing to crack down on evasion of the Group of Seven’s price cap on Russian oil, as recent market prices signal that the mechanism may no longer be working as hoped.

In an interview with the Wall Street Journal, Yellen said the U.S. is “looking at enforcement very carefully and we want to make sure that market participants are aware we take this price cap seriously, and, to the extent Western services are used, we mean business about abiding by the cap.”

The oil-price cap and its enforcement are expected to be on the agenda in talks between Yellen and her fellow G-7 finance chiefs in Marrakesh, Morocco, this week — on the sidelines of an annual gathering of the World Bank and International Monetary Fund.

The restriction is one of the sweeping financial penalties imposed over Russia’s 2022 invasion of Ukraine. The U.S. and its allies imposed the price cap in late 2022, aiming to deny Moscow some of the revenue from its fuel sales, to undermine its war effort while keeping export volumes high to prevent world oil prices from spiking.

No market dysfunction 

In a separate interview with the Financial Times, Yellen said the recent surge in bond yields has not created dysfunction in U.S. financial markets. 

“I haven’t seen any evidence of dysfunction in connection with the increase in interest rates,” Yellen told the FT. “When rates are more volatile, sometimes you see some impact on market function, but that is pretty standard.”

U.S. Treasury yields have climbed to the highest levels since 2007, a surge that heightens the danger in the near-term of a financial blowup akin to the regional bank breakdown in March and threatens to undercut the economy by markedly raising borrowing costs for consumers and companies.

Ukraine aid 

Yellen plans to tell her counterparts at the IMF meetings that supporting Ukraine remains a top priority, she said in another interview with the New York Times, while calling on Congress to authorize additional funding for Kyiv.

“Fundamentally we have to get Congress to approve this,” Yellen told the New York Times. “There’s no gigantic set of resources that we don’t need Congress for.”

US funding for Ukraine faces a new hurdle in Congress after Representative Kevin McCarthy’s ouster as House speaker gave Republican hardliners an opening to stall the next round of aid to Kyiv.

The fate of U.S. assistance for Ukraine’s efforts to fend off Russia’s invasion now rests in large part on the next speaker, who will have to navigate a party sharply divided on the issue. 

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